Law and regulation of concurrent delay in Colombia

There is no legal definition of “concurrent delay” in Colombian law. Although it is not clear whether it is a well-developed and understood market-practice in the real estate construction sector, it is common for real estate developers and constructors to include a concurrent delay provision in contracts entered into with project investors and purchasers.

Additionally, it does not seem to be a well-developed and understood concept in public works projects.

No.

In the real estate construction sector, concurrent delay is governed by the terms of the contract entered into by the parties; this means that the agreement itself is the mechanism through which the parties allocate all their risks and responsibilities. Nevertheless, there are certain legal concepts that result applicable. For instance, the Colombia Civil Code provides some general rules applicable whenever any of the parties to the agreement incurs in a delay in performance. Article 1610 of the Colombian Civil Code provides that if a contractor incurs in a performance delay (“mora”), the creditor (in this case the constructor who retained the contractor´s services) may file a request before a court to demand, along with the damages resulting from the delay, one of three options at the creditor´s election: (i) performance by the breaching party of the agreed upon obligations, (ii) authorization to enter into a new contract with a third party to execute the unperformed obligations, or (iii) all the damages resulting from the breach. Additionally, Article 1609 of the Colombian Civil Code provides the exceptio non adimpleti contractus defense which allows any party to a contract to withhold the performance of its own obligations if the counterparty has not performed an obligation which should have been performed first in time or concurrently. 

Although it is not clear whether it is a well-developed and understood market-practice in the real estate construction sector, it is common for real estate developers and constructors to include a concurrent delay provision in contracts entered into with project investors and purchasers. According to the provision, constructors would not be responsible against purchasers and investors for delays resulting from project contractors’ delays occurring concurrently with delays for which the constructors are responsible.

Even though there does not seem to be a well-developed and understood concept applicable for public works projects, Article 4 of Law 1150 of 2007 provides that all public contracts must include provisions regarding the allocation of foreseeable risks and responsibilities between the contracting parties. To this end, it is very common that if one of the concurrent events is a result of a contractor’s delay caused by a subcontractor’s delay, the contractor would not be entitled to an extension of time or an additional payment because the responsibility for the execution of the project before the contracting authority and is of the contractor. Additionally, it is worth mentioning that the highest administrative court in Colombia (Consejo de Estado) has extended the application of the exceptio non adimpleti contractus to public contracts if the contracting authority is itself the other concurrent cause of delay, conditioned to the following requirements: (i) the existence of a bilateral contract between the parties, meaning that the obligation of one party constitutes the cause of its counterparty’s obligations; (ii) that the breach of the contract is certain and real, meaning that it cannot be invoked due to an eventual or potential breach; (iii) that the breach is grave and decisive and if it comes from the contracting authority, it places the contractor in a reasonable impossibility to fulfill its obligations; and (iv) that the party invoking the exception must be the party that did not have the obligation to fulfill an obligation that must have been executed first in time. The Consejo de Estado has considered that a grave and decisive event attributable to the public authority that can trigger the application of the exception can be the case that the public authority has the obligation to make available the site where the work is to be executed and does not do it timely, or when it does not perform a retainer necessary for the contractor to initiate the works. 

Nevertheless, it is worth mentioning that it has been recognized that in certain cases, concurrent delay, if triggered by events attributable to force majeure or public interest reasons, it may allow the parties to agree on suspending the execution of the contract. Even more, if such kind of concurrent delay severely affects the financial equilibrium of the contract, the contracting party may request to the contracting authority for compensation of damages or the recognition of additional costs. 

It is worth mentioning that in the absence of an express contractual provision or a special regulation applicable to public contracts, Article 13 of Law 80 of 1993 cross refers to the Colombian civil and commercial code stipulations which are described in the abovementioned paragraph.

In the real estate construction sector, there are no general principles that specifically apply to the treatment of concurrent delay, different from those arising out of private law which, among others, include the parties’ freedom to agree their contract’s provisions, the principle of reciprocity of obligations, good faith principle, and the prevalence of public interest legal provisions. In the Colombian real estate construction sector, the contractor will get an automatic extension of time for any period of concurrent delay only if the parties have agreed to do so.

In public works projects, public procurement principles apply to all kinds of delays, in addition to the general principles abovementioned. Therefore, the parties must bear in mind the economy and responsibility principles when dealing with such events of concurrent delay.

In addition to the above, whenever in an agreement for the construction of a building or project the parties agree a fixed price for the contracted services, the parties must observe, among others, the following rules provided in Article 2060 of the Colombian Civil Code): (i) the constructor may not request for an increase of the price where an increase on the construction (materials, labor and others) costs has occurred or if the construction plan is modified, unless said modifications have a set price and (ii) if any unknown circumstance arises (i.e. hidden geological fault) and leads to additional unforeseeable costs, the constructor must obtain the owner’s authorization , in order to assign said costs; if the owner refuses to provide said authorization, the constructor may file a claim before a judge who will decide whether the construction’s extra charge was foreseeable or unpredictable to accept or reject said extra charge and fix the correspondent value of the increased cost. 

In a public works contract, if concurrent delay is caused by events attributable to force majeure, public interest, or to the contracting authority and they severely affect the financial equilibrium of the contract, the contracting party may request to the contracting authority compensation of damages or the recognition of additional costs. Even though these theses have been greatly developed by case law, Article 40 of Law 80 of 1993 provides that the addition of a public works contract to recognize additional costs to the contractor cannot exceed fifty percent (50%) of its initial price.

In the real estate construction sector, whenever the constructor claims that the work was not duly executed, both parties will appoint experts that will decide whether the work was duly executed or not. There are no special requirements regarding evidence of the cause or causes of the delay, except when the delay of the contractor is caused by an action of the constructor.

In public works contracts, an external controller is always appointed by the contracting authority to act as its representative to monitor and audit the works. Among its obligations, the controller must validate if the delay caused by events attributable to force majeure, public interest or to the contracting authority are valid and reasonable to suspend or extend the term of the contract.

In the real estate construction sector and public works contracts, the issue of concurrent delay is governed by the terms of the contract entered into by the parties; this means that the agreement itself is the mechanism through which the parties allocate all the risks and responsibilities.

Nevertheless, this allocation cannot lead to an unbalanced distribution of the risks since the Courts have settled precedents in which they have corrected said imbalances through their judgements. A clause which allocated the entire risk of concurrent delay to the Contractor may well be found to result in such an imbalance and not be enforced in part or in whole subject to the circumstances of the particular case. 

On the other hand, public contracts (public works and concession contracts) often include the following contractual provision: 

If there are two or more concurrent delay causes and only one of them grants the right to the contractor to an extension, the contractor will be entitled to an extension equivalent to the term of such circumstance that fell within the extension of time clause.

Such a term in favour of the Contractor is generally considered to be valid and enforceable. 

An event that is at the Contractor’s risk under the contract (a “Contractor Risk Event”) will result in five weeks delay to completion, delaying the contract completion date from 21 January to 25 February. Independently and a few weeks later, a variation is instructed on behalf of the Employer which, in the absence of the preceding Contractor Risk Event, would result in delay to completion from 1 February to 14 February.

7.1 Is the Contractor entitled to an extension of time in respect of the variation? If so, for how long?

In both the real estate construction sector and in public works contracts entered into with the State, the contractor will get an automatic extension of time for the materialization of a particular event or for Employer Variations if the parties specifically agreed to do so. 

In this sense, if there is a clause allowing an extension of time for Employer Variations, the contractor would be entitled to the aforementioned extension. In such circumstances, the Contractor could claim delay costs in order to restore the initial financial equation of the contract, in terms of the Article 868 of the Colombian Commerce Code. This regulation provides that if an unforeseeable or unanticipated event occurs during the performance of the contract and its consequences seriously affect the execution of the contract, the affected party can claim the re-establishment of financial equation to its initial state by filing a claim before the competent judge (administrative courts for State contracts and civil judges for private contracts).

On the other hand, it is a well-developed practice in Colombia, in both private and public contracts, to expressly include risk events for which the parties are entitled to receive a compensation if those stipulated events materialize in order to restore the financial equation of the contract. One of the most common compensation mechanisms that the parties stipulate is the automatic extension of time. In such circumstances, the contractor would be entitled to an extension of time, as a compensation for the materialization of risk events. 

However, in relation to the circumstances noted above, whether the Contractor is entitled to an extension of time in respect of the variation or not will be probably something that will trigger a dispute between the parties to be defined by a judicial decision or arbitration award. However, it is our opinion that the Contractor is not entitled to get an extension of the term as the pre-existing delay due to a Contractor Risk Event may already constitute a breach of its obligations of the contract before the variation instructed on behalf of the Employer.

7.2 Assuming the Contractor is contractually entitled in principle to recover delay-related costs relating to the variation, for what period (if any) could it recover those delay-related costs?

For the reasons given above, it is our opinion that the Contractor is not entitled to recover delay -related costs as the pre-existing delay due to a Contractor Risk Event may already constitute a breach of its obligations of the contract before the variation instructed on behalf of the Employer.